This study estimates effects of managed care (versus fee-for-service care) on the
costs, intensity, and quality of publicly insured hospital inpatient care using Patient Discharge
Data from the Office of Statewide Health Planning and Development. The Medi-Cal system
presents a unique opportunity to study the effects of managed care versus fee-for-service
because it imposed differential managed care mandates across counties, greatly reducing the
methodological challenge of selection at the individual patient level.
The effects of managed care are evaluated across three principle outcomes: total
charges, length of stay, and inpatient mortality. Preliminary findings suggest that managed
care is associated with reduced total charges (2.4%) and length of stay (8.8%). The entirety of
the cost advantage of managed care appears to be due to its reduction on inpatient length of
stay; when this is controlled for, managed care becomes associated with increased costs of
2.9%. Managed care is shown to be far more effective at inducing cost savings among
surgical hospitalizations than medical ones, and is associated with an absolute reduction in
risk of patient mortality of 0.36% among the total population and 0.97% among the subpopulation
of patients with baseline mortality risk greater than 1%. Comparisons of the
effects of managed care among Medi-Cal patients with more and less predictable conditions
suggest no notable adverse selection into managed care.
Given the importance of the expansion of Medicaid in the Affordable Care Act in
providing health insurance to millions of Americans, as well as the significance of inpatient
care in overall healthcare expenditures, these findings potentially have notable policy